Afghanistan - Livestock Development Project

F ILE COPY DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL FINANCE CORPORATION INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use Report No. 56-a-AF APPRAISAL OF A LIVESTOCK DEVELOPMENT PROJECT AFGHANISTAN March 8, 1973 Agriculture Division ProJects Department Europe, Middle East and North Africa Regional Office This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report.  CURRENCY EQUIVALTS US$1 - Afghani Rials (Af) 85.0 Af 1 - US$0.01176 Af 1 million = US$11,760 WEIGHTS AND MEASURES 1 kilogram (k-) = 2.20 pounds 1 kilogram U 0.14 seer 1 seer - 7 kilograms 1 metric ton - 1,000 kg 1 metric ton 0 0.9b long ton 1 meter (m) 1.09 yards 1 kilometer (km) - 0.62 miles 1 hectare (ha) - 2.47 acres 1 hectare a 5 jeribs 1 jerib 0 0.20 hectares ABBREVIATICNS DANIDA - Danish Government Financing Agency ERIC = Experimental Range Improvement Center HLDC = Herat Livestock Development Corporation MAI = Ministry of Agriculture and Irrigation MIS = Minor Irrigation Section of MAI NLDC = NationaL Livestock Development Commission PACCA = Programs for Agricultural Cooperatives and Credit in Afgnanistan PDA = Paktia Development AutnorLty Convention TIR = Transport International Routier Convention TSU = Technical Services Unit 6f the Herat Livestock Development Corporation FISCAL YEAR April 1 - Mrch 31  AFGHANISTAN LIVESTOCK DEVELOPMENT PROJECT TABLE OF CONTENTS Page No. SUMIARY AND CONCLUSIONS ............................... - ii I. INTRODUCTION ......................................... 1 II. BACKGROUND .........................................* 1 A . General .*a.....*.a O............................. 1 B. The Agricultural Sector .......................... 2 C. The Livestock Subsector 3.................,...... 3 III. THE PROJECT .................. .................. 4 A. Definition ..... ................................ 4 B, Detailed Features ........................... S.... 6 C. Cost Estimates and Financing *...........,........ 8 D. Procurement ..................... ,12 E. Disbursements and Savings ....................... 13 IV. ORGANIZATION AND MANAGEMENT *.......................... 14 A. Project Administration . 14 B. Lending Operations .............................. 16 V. PRODUCTION, MARKET PROSPECTS, PRICES AND PRODUCER BENEFITS ............. 18 A. Production ......... .... 18 B. tMarket Prospects .....................*... ...... . 19 C* Prices ................... 21 D. Producer Benefits ................ ................ 22 VI. ECONOMIC BENEFITS AND JUSTIFICATION ................... 23 VII. RECOMtENDATIONS ............. ......... 25 This report is based on the findings of an appraisal mission to Afghanistan in June 1972, consisting of Messrs. H. von Oppenfeld and G. Luhman (IDA), and K. Anderson, V. Ashworth and C. Wolffelt (consultants). Mr. Noon (IDA) assisted in analyzing export markets for mutton from Afghanistan and addi- tional contributions to the report were made by Mr. Merghoub (IDA).  Table of Contents (Cont'd) Schedule A: Tentative Implementation Schedule for Experts' Services ANNEXES 1. Livestock Subsector 2. Groundwater Development 3. Farm Model 1: Sheep Fattening and Breeding on 65-Jerib (13 ha) Farm 4. Farm Model 2: Sheep Fattening on 65-Jerib (13 ha) Farm 5. Farm Model 3: Slaughterhouse Farm (174 ha) 6. The Slaughterhouse of the Herat Livestock Development Corporation 7. Marketing 8. Technical Services Unit 9. The Experimental Range Improvement Center 10. Cost Details: Management Services and Training 11. Disbursement Projections 12. The Agricultural Development Bank 13. Economic Rate of Return Crop Calendars (Chart 6995) Suggested Layout - HLDC (Chart 6996) Dnplementation Schedule (Chart 7070 R) Organigram (Chart 7071 R) Map (IBRD 10109)  AFGHANISTAN LIVESTOCK DEVELOPMENT PROJECT SUMMARY AND CONCLUSIONS i. This report appraises a Livestock Development Project in the Herat region of western Afghanistan for which an IDA credit of US$9 million is proposed. It would support a four-year lending program for financing investments on about 1,200 farms involving groundwater development and establishment of alfalfa for fattening and breeding sheep on a feed-lot basis. It would assist in financing a slaughterhouse to process sheep from Project farms and from traditional flock owners for sale in export markets, primarily Iran. It would also assist in financing a fattening/demonstration farm, an Experimental Range Improvement Center (ERIC), technical services and infrastructure. ii. Livestock contributes about 10% of GDP and 24% of exports, and employs approximately two-thirds of the population. As is the case with agriculture in general, its development has been hindered by rugged topo- graphy, harsh continental climate, low rainfall, scarcity of improved in- puts, inadequate support services, and shortage of established market out- lets. In recent years, Government has tried to combat some of these problems through the reorganization and strengthening of extension and credit services, increased distribution of fertilizer and encouragement of groundwater devel- opment. The allocation for agricultural development has been increased by 12% for the Fourth Plan (1972/73 - 1975/76) as compared to the Third Plan, and the activities of sheep fattening, slaughterhouse construction, and establish- ment of export markets for mutton rank among the Plan's highest priorities. iii. This would be the third agricultural project to be financed in Afghanistan by the Bank Group. The earlier projects involved IDA credits for agricultural credit and irrigation. iv. The Project would involve investments in farm development (US$2.7 million), a slaughterhouse (US$5.5 million), an Experimental Range Improve- ment Center (ERIC) (US$0.4 million), technical services aLnd road improvement (US$0.9 million), and management services and training (US$1.5 million). The foreign exchange component is estimated at US$6.7 million equivalent or 61% of total Project cost. The IDA credit would finance US$9 million equiv- alent, or 82% of total Project cost, including US$2.3 million equivalent of local cost. The remainder would be financed by Governmernt (8%), the Agricultural Development Bank of Afghanistan (AgBank) (5%'), and participating farmers (5%). Farmers' contributions would be 20% of farm development in- vestment costs.  - ii - v. Government would transfer an amount of US$2.4 million equivalent, US$0.7 million from its own resources and US$1.7 million from the IDA credit, to the Herat Livestock Development Corporation (HLDC) as equity. The loan portion of slaughterhouse financing, amounting to US$4 million equivalent from the IDA credit, together with US$1.6 million from the credit relating to farm development, would be on-lent by Government to AgBank with a maturity of 15 years, including five years of grace, at 4-1/2% interest. AgBank in turn would on-lend the funds to farmers with a maximum maturity of seven years (including up to two years of grace), and to HLDC for the construction of the slaughterhouse, with a maturity of 15 years (including five years of grace), at 8% interest. Government would make available on a grant basis to HLDC the remainder of the IDA funds - about US$1.7 million plus about US$300,000 of its own funds for road improvement, ERIC and technical services. vi. HLDC would be established as a joint Government and private stock company under the Project and would serve as the primary executing agency under the policies formulated by the National Livestock Development Commis- sion (NLDC). HLDC's principal functions would be to provide technical as- sistance to farmers through its Technical Services Unit (TSU) and to operate the slaughterhouse, but it would also operate the slaughterhouse farm and ERIC. Agricultural and groundwater extension staff of TSU would assist participating farmers in preparing and implementing their development plans, while AgBank would be responsible for loan appraisal. A veterinarian from the Ministry of Agriculture and Irrigation (MAI) would advise TSU on veterinary services and establish a meat inspection unit for the slaughterhouse. vii. Procurement of the slaughl:erhouse would be made on the basis of international competitive bidding under turnkey contract. The slaughterhouse would involve a) preparation of broad specifications for tendering and con- struction supervision, b) construction under turnkey contract, c) transport equipment, and d) management and expert services. Items b) and c) would be subject to international competitive bidding while the firms providing the services under a) and d) would be selected in accordance with IDA's Guidelines. Farm development would be carried out by family or hired labor or local con- tractors, and none of the items would be suitable for international competitive bidding. Afghanistan imports pumpsets from at least four Bank/IDA countries, and competition among dealers is satisfactory. viii. HLDC would be established with a sound financial basis and com- petent management. It would be given essential support by AgBank, which is being reorganized and managed by a team of consultants, and by MIS (Minor Irrigation Section of the Ministry ofgriculture and Irrigation), which also is being assisted by consultants under IDA Credit 202-AF. These en- tities would provide a sound framework for Project implementation. Estimated financial rates of return range from 15% to 38% for the Project components. The rates of return to the economy are estimated at 18% to 37%. Provided the necessary assurances are obtained, the Project would be suitable for an IDA credit of US$9 million equivalent.  AFGHANISTAN LIVESTOCK DEVELOPMENT PROJECT I. INTRODUCTION 1.01 The Royal Government of Afghanistan (Government) has requested an IDA credit to help finance on-farm development for sheep production and slaughterhouse construction in Herat Province, with the twofold objective of stabilizing the nomadic sheep flocks in the area and facilitating the export of chilled mutton. Institutional credit, partly financed by IDA, would enable farmers to invest in groundwater developmenit and sheep breeding and fattening. 1.02 Bank Group lending for agricultural development in Afghanistan consists of two IDA credits: US$5 million (Credit 202-AF) in 1970 for an Agricultural Credit Project, which after initial delays is progressing satisfactorily, and US$5 million signed in 1971 for the Khanabad Irriga- tion Project, which became effective after a delay in tlhe parliamentary approval of the credit. 1.03 Three FAO/IBRD preparation missions (1969, 1970 and 1971) assisted Government in identifying and preparing the proposed Project. This report is based on the findings of an appraisal mission to Afghanistan in June 1972, consisting of Messrs. H. von Oppenfeld and G. Luhman (IDA), and K. Anderson, V. Ashworth and C. Wolffelt (consultants). Mr. Noon (IDA) assisted in analyz- ing export markets for mutton from Afghanistan and additional contributions to this report were made by Mr. Merghoub (IDA). II. BACKGROUND A. General 2.01 Afghanistan (see map), a landlocked country b,ounded by Iran, USSR, China and Pakistan, comprises 635,000 km2, of which about 22% (14 million ha) are classified as arable and 8% (5.1 million ha) are actually cropped. Of its estimated 14 million population (1970), growing at 2% annually, some 14% are nomadic and only 12% are urban. Annual growth of GDP averaged 3% during 1967-70, and economic growth over the last decade has barely kept pace with the rate of growth of the pop,ulation and labor force.  - 2 - 2.02 Afghanistan's rugged topography and extreme temperatures provide a harsh environment for economic development. A dominant physical feature is the central Hindu Kush mountain range, rising to over 6,000 m, which divides the country into four major regions based on the four principal river systems. In the north, the high pastures of Mazar-i-Sharif slope down to the valley of the Amu Darya River. In the west is the Hari Rod River, while in the southwest are the Helmand and Arghandab Rivers and, in the east, the Kabul River. B. The Agricultural Sector 2.03 Afghanistan is not well endowed with natural resources and its economy is largely dependent on the production and export of agricultural and livestock products. In 1970/71, agriculture, including livestock, sup- ported at least 80% of the population, accounted for 51% of GDP and contrib- uted 73% of the country's export earnings. Of total agricultural exports, dried fruits and nuts accounted for 34%, and wool and skins (including karakul pelts) for another 32% (Annex 1). Major crops are food grains (3,120,000 tons), seed cotton (60,000 tons), sugar beets (55,000 tons) and oilseeds (30,000 tons). Production has not significantly increased during the last decade. Food grain imports, which have averaged between 100,000 and 200,000 tons, increased to some 600,000 tons in 1971/72, fol- lowing two consecutive droughts. The relatively slow growth of the economy is due largely to the slow pace of agricultural development, which is due partly to physical constraints and partly to inadequacies in the administra- tive structure affecting agricultural development. 2.04 Physical constraints are: unfavorable topography (vast mountainous areas), harsh continental climate (cold winters and hot, dry summers) and in- adequate rainfall averaging 200 to 300 mm per annum and concentrated during the winter months (Annexes 1 and 2). Southwestern Afghanistan is mostly desert, averaging less than 100 mm rainfall per annum. Irrigation is thus especially important. Though about half (2.6 million ha) of the cropped area is classified as irrigated, most of this land suffers from water shortage and inadequate irrigation systems resulting in a high proportion of crop failures and fallow land. Government, with external financing, has concentrated on a few large-scale irrigation and infrastructure projects which are slow-maturing and just beginning to yield significant benefits. 2.05 Institutional constraints have been: inadequacies in the extension services, combined with a failure to communicate effectively with farmers; in- adequate supply and distribution of farm requisites, especially seeds and fertilizer; the limited availability of institutional credit; and Government pricing systems that discourage higher production, especially for cotton, wool and karakul pelts. Until recently, the development strategy did not aim at quick-yielding results; and inadequate support has been extended by  Government to the development of the livestock subsector. Furthermore, the land tenure system has impeded investment and innovation. While the aver- age holding is about 3.5 ha of cultivated land, the distribution is highly skewed. In the Herat area, for example, about 75% of all owner-occupied holdings are less than 2.0 ha and over 30% are less than 0.5 ha. About 55% of holdings in the area are farmed by owner-operators, 272% by tenants and 18% by laborers. 2.06 Since 1971 Government has tried to minimize and overcome some of these constraints. The extension and credit services have been reorganized and strengthened. About 60,000 tons of fertilizer, more t:han twice the vol- ume of any previous year, were distributed by Government in 1971, in combina- tion with an effort to introduce seasonal credit. Government has established a fertilizer corporation that would procure fertilizer andl distribute it through private channels. The US Government has recently approved a loan of US$30 million equivalent to cover fertilizer imports for about three years. Groundwater development has been encouraged through 340 medium-term loans for pumpsets in 1971/72 and additional pumpsets (about 500) are being pro- cured under IDA Credit 202-AF. Buying prices for cotton were raised by 14% in 1972 and, to increase marketing incentives for flock owners, Government, in August 1971, suspended the export ban on live sheep. Moreover, it ranks sheep fattening, slaughterhouse construction, and the development of mutton exports, as envisaged under the proposed Project, among ilts highest priority programs. Although overall planned expenditures for the Fourth Five-Year Plan (which was to begin in 1972 but has been postponed to 1973) remain almost equal to those of the Third Plan period, agricultural development strategy is being reoriented towards more quick-yielding projects. Large numbers of foreign technicians have assisted Government in planning and executing its development programs, and there are many foreign technicians from bilateral and multilateral sources presently working in the country. 2.07 Institutional credit for agriculture began in Afghanistan with the establishment of the Agricultural Development Bank's (AgBank) predecessor in 1954. The few commercial banks have not been active in agriculture except for some short-term financing of processing and marketing, particularly for export. Even AgBank has been unable to achieve a significant impact on agri- cultural credit because of problems of organization and loan security. The former is being overcome with the assistance of a consultant team (para 4.11), but the appropriate legal framework for an effective security system may take some time to develop. As a consequence, the great majority of farmers must rely on private moneylenders who charge interest rates of 30% or more. C. The Livestock Subsector 2.08 Livestock accounts for about 10% of GDP and contributes 24% of the country's export revenue (1970/71). About two-thirds of the popula- tion are engaged in livestock-keeping and major export commodities are karakul pelts and other skins, wool, and casings. Prior to the recent  - 4 - losses (para 4.16), the composition of the national herd was estimated at 22 million sheep, 3.2 million goats, and 3.7 million cattle, aside from donkeys, horses and camels. The sheep and goat population exists in a precarious balance between overgrazed pastures, inadequate watering facil- ities, and a difficult climate. When this balance is upset by drought or severe winters resulting in malnutrition and low disease resistance, losses of 20 to 30% are not uncommon and are especially high during the lambing season. Research and extension, through a program of development in breed- ing, feeding, animal health and range management, have not yet received the support they deserve from Government, although they are being assisted by a UNDP project for which FAO is executing agency. There has been no significant increase in livestock productivity during the last decade and there is little basis for predicting improvements. 2.09 Low productivity is due partly to the complexities of ecological problems in the vast and inaccessible regions and partly to inherent diffi- culties with understanding and motivating the transhumants 1/ and nomads who control most of the national herd. Presently the shepherds take their flocks to the mountain pastures in the spring and return with them to the valleys in the fall. There is now an increasing awareness in official circles that the livestock subsector requires special attention if it is to make greater contributions to national growth; that production must be increased by re- ducing losses from malnutrition and disease; that livestock production must be integrated with cropping in such a way as to reduce the grazing pressure on the range and to allow the finishing on forage crops of all animals sur- plus to the breeding herd; that slaughterhouses, chilling, transport, and by-product handling facilities are required to channel livestock products into foreign markets; and that the fixed exchange surrender rates for wool and pelts, which are lower than the Da Afghanistan Bank free exchange rate used to convert export earnings for all other commodities except cotton, should be eliminated. 2. 10 The Herat region, with a slheep population of perhaps five million prior to the recent losses, is typical of the conditions found in Afghanistan. Sheep flocks migrate substantial distances - hundreds of kilometers in some cases - to the mountain grazing areas in spring and then return in the fall to winter around Herat. By tapping the export market in Iran and other neigh- boring countries, the Project would provide a stable market outlet with at- tractive prices for the classes of sheep most likely to succumb to the hard- ships of travel and winter - lambs and older sheep - and thus enable the shepherds to obtain a higher income while maintaining their flocks in better condition, III. THE PROJECT A. Definition 3.01 The Project would be part of Government's long-term livestock de- velopment program and would be located in Herat Province in western Afghanistan. 1/ Nomads who maintain a winter residence in villages.  It would provide market outlets for the traditional flock owners and facil- itate the export of chilled mutton through the construction of slaughterhouse facilities and establishment of export markets. The Herat Livestock Develop- ment Corporation (HLDC), a joint stock company to be established, would be the primary executing agency under the Project. The Project would be de- veloped over a four-year period and would consist of the following: (a) On-farm Development, which would involve about 1,200 farmers and be carried out by the Agricultural Development Bank (AgBank). It would include investments in: (i) groundwater development (dugwells, pumpsets, water distribution system); (ii) breeding stock, draft oxen, donkeys; (iii) alfalfa establishment. (b) Construction of the HLDC Slaughterhouse, which would include: (i) preparation of broad specifications for bidding documents, and supervision during constru,ction, by engineering consultants; (ii) detailed design and specifications, civil con- struction, utilities, machinery and equipment, all under a turnkey contract; (iii) transport equipment. (c) HLDC Experimental Range Improvement Center, which would develop management practices that could be applied on large areas of Afghanistan's rangeland. (d) Technical Services and Infrastructure, to be provided by HLDC's Technical Services Unit (TSU) and its pump center in cooperation with AgBank. Investments would include: (i) training and local extension services; (ii) equipment and facilities; (iii) road improvement. (e) Expert and Management Services as required for (b), (c) and (d). 3.02 Typical farm size, phasing of loans, average investment per farm, and total investment cost for on-farm development would be as follows:  -6- Farm Investment Cost Size Number of Loans by Year Unit Total Category (ha) 1 2 3 4 Total (Af '000) Fattening and Breeding 13 100 150 175 175 600 195 117,000 Fattening 13 100 150 175 175 600 163 97,800 Total 200 300 350 350 1 200 214 800 _ a . Investment in a 174-ha slaughterhouse farm for alfalfa production and sheep fattening would take place in year 1 (Annexes 3, 4 and 5). B. Detailed Features On-Farm Development and Slaughterhouse Farm 3.03 Development would be located in the Herat Province of the Hari Rod Valley. The Project area extends east from Herat City about 60 km to larwa and west about 80 km to beyond Ghoriyan and varies in width from 2 to 14 km. It encompasses the land on both sides of the Hari Rod River where the water table lies within approximately 10 m of the surface and covers a total of about 1,200 km2. The U.K. Overseas Development Administration has agreed to carry out a study of groundwater resources and soils in the Proj- ect area to help provide additional information for siting wells and select- ing cropping patterns. It is expected that about half of some 1,200 farmers would engage in sheep fattening and breeding, while the others would engage in fattening operations only. A representative holding would be about 13 ha. While these types of operations are already being carried out in the Herat region by a few farmers, the Project would introduce them to a substantial number of farmers on a commercial basis (Annexes 3 and 4). 3.04 Each farm investment plan would cover a period of two years and would lead to full development in year four. The investment would involve the installation of a dugwell and pumpset, purchase of draft and pack animals and implements, and establishment of some alfalfa in the first year and ad- ditional alfalfa plus purchase of breeding animals (in the case of the breed- ing farms) in the second. For fattening operations, farmers would purchase sheep from the traditional shepherds, fatten them on a feed-lot basis, and sell them to the slaughterhouse for processing. AgBank would provide long- term loans, averaging about Af 195,000 (US$2,300) for fattening and breeding and Af 163,000 (US$1,900) for fattening, on terms of up to seven years at 8% interest, including a grace period of up to two years. It would also provide complementary short-term financing in support of the farm plans. 3.05 About 174 ha of the 192-ha slaughterhouse tract would be devoted to a farm for sheep fattening, the provision of alfalfa requirements for slaughter sheep, and demonstration of alfalfa production to Project farmers. The farm would be partly mechanized and would be irrigated by three tubewells (see Annex 5).  -7- HLDC Slaughterhouse 3.06 The slaughterhouse would be constructed within about two years (para 4.06 and Annex 6) and would be located on a 192-ha tract in an indus- trial-zoned area about 9 km south of Herat City where it would have ready access to the labor market, good transportation facilities, plentiful ground- water supplies, and easy effluient disposal. The proposed layout is shown in Chart 6996. Government has initiated proceedings to acquire this land. A condition of effectiveness of the credit is that Covernment had acquired title to the IILDC slaughterhouse site and had transferred it as a contri- bution to HLDC share capital. The plant would operate its own fleet of trucks, some refrigerated and some to carry live sheep, thus having the capability to control its main product from place of purchase to place of sale. About eight sheep-buying stations would be constructed to give farmers marketing points within easy reach of their farms and tc provide outlets for sheep from the traditional flock. 3.07 The slaughterhouse would process for export the livestock from all Project farms (Annex 7). To ensure sufficient util:Lzation of the plant during the early development stage, sheep would also be purchased from the traditional flock. Provisions would also be made for the slaughtering of cattle and goats for the local market. In addition, the slaughterhouse would process inedible by-products for export and domesitic markets. This would be the first modern meat processing plant in Afghanistan. Commencing with a single shift (up to 2,000 head/day), slaughtering operations would gradually expand (under a second shift processing up to 3,000 head/day at full capacity), as required by the expected increase in the supply of sheep. Buildings and basic equipment would be designed to operate at full capacity from the beginning, but the purchase of expansion equipment would be deferred for about two years, until justified by the increasing throughput. Technical Services and Infrastructure 3.08 The Project would provide management and expert services of nine expatriates - five for operating the slaughterhouse (para 4.06); three for extending-livestock, crop and farm management technology to Project farmers through the Technical Services Unit (TSU) of HLDC; and one range management expert under the Experimental Range Improvement Center (ERIC) (see Schedule A). Assurances were obtained during negotiations that the management serv- ices of nine experts under contract with a firm would be procured for the Project, on terms and conditions satisfactory to IDA and in accordance with a timetable (Schedule A) satisfactory to IDA. With financial assistance available to it from bilateral or multilateral sources, Government would provide the services of a veterinarian specialist. He would collaborate on both farm development and meat inspection. To facilitate replacement of experts provided under the Project, fellowships for training abroad for periods of a few months to two years would be included as a supplement to on-the-job training. (See Annexes 8, 9 and 10 for details of expatriate experts.)  - 8 - 3.09 In order to ensure effective implementation of the Project, various infrastructure investments would be required. The principal east-west roads in the Project area would be improved as part of Government's highway main- tenance program, but the upgrading of access roads, totaling about 68 km, would be provided for under the Project (Appendix 8-2). The road work would be carried out by the Ministry of Public Works which is being assisted by consultants (Kampsax) under a UNDP project for which the Bank is executing agency. TSU, to be established within HLDC, would, in conjunction with its pump center and AgBank, develop and appraise farm plans and assist farmers in their implementation. Three farm service centers, one for each of the outlying districts, would be constructed to provide office, meeting and storage space for the TSU staff and associated village agents. Seed cleaning equipment (Appendix 8-2) would be purchased under the Project and would be operated by the HLDC farm, enabling farmers to submit field seed and receive clean seed in return. HLDC Experimental Range Improvement Center 3.10 With a view to defining management practices for range improvement, the Project would include provision for an Experimental Range Improvement Center (ERIC) to be established and managed on behalf of Government by HLDC. It would involve provision of expert services, watering points, limited fencing, production of supplemental winter feed, provision of health and shearing services, facilities for buying and holding sheep, and testing of techniques for pasture improvement and range management. The objective would be to develop range management practices that could be applied on large areas of Afghanistan's rangeland. Specific location of ERIC would be determined by the range management expert in consultation with Afghan authorities after an analysis of the local situation. Further details on concept, layout and staffing of ERIC are in Annex 9. C. Cost Estimates and Financing Cost Estimates 3.11 Estimated Project costs, together with foreignr exchange requirements, are detailed in Annexes 3-6 and 8-10 and summarized below. Estimates are based on present prices and, in the case of the HLDC slaughterhouse, a 5% physical contingency is provided plus an allowance for cost increases amount- ing to 4% per annum.  -9- Af Million US$ Thousand Foreign Category Local Foreign Total Local Foreign Total Exchange 1. Farm Development a. Farmers 123 92 215 1442 1087 2529 43 b. HLDC Slaughterhouse Farm 8 5 13 90 63 153 41 Subtotal 131 97 228 1532 1150 2682 42 2. HLDC Slaughterhouse a. Engineering & Supervision 1 9 10 18 100 118 85 b. Civil Construction, Utilities, Machinery & Equipment 119 151 270 1397 1779 3176 56 c. Transport Equipment 5 92 97 57 1084 1141 95 d. Permanent Working Capital 7 3 10 83 35 118 30 Subtotal 132 255 387 1555 2998 4553 65 3. HLDC Experimental Range Improvement Center 18 17 35 210 202 412 49 4. HLDC Technical Services Unit & Road Improvement 45 28 73 524 335 859 39 5. Expert & Management Serv- vices Including Training 13 119 132 155 1398 1553 90 6. Contingencies for HLDC Slaughterhouse a. Physical 5% 7 13 20 78 150 228 67 b. Price 4% p.a. 19 43 62 226 503 729 69 Subtotal 26 56 82 304 653 957 69 Total 365 572 937 4280 6736 11016 61  - 10 - Financial Plan 3.12 The Project would be financed as follows (details in Annex 11): Farmers AgBank Government IDA Total Category ---- -------Af (million) ------------) 1. Farm Development a. Farmers 41 43 - 131 215 b. HLDC Slaughterhouse Farm _ 8 - 5 13 Subtotal 41 51 - 136 228 2. HLDC Slaughterhouse a. Engineering and Supervision - - - 10 10 b. Civil Construction, Utilities, Machinery and Equipment - - 26 244 270 c. Transport Equipment - - 10 87 97 d. Permanent Working Capital _ _ 10 - 10 Subtotal _ _ 46 341 387 3. HLDC Experimental Range Improvement Center _ - 6 29 35 4. Technical Services Unit and Road Improvement - _ 13 60 73 5. Expert and Management S-ervices Including Training _ _ 13 119 132 6. Contingencies for HLDC Slaughterhouse - - 1 81 82 Total Af Million 41 51 79 766 937 US$ Million 0.5 0.5 1.0 9.0 11.0 Percent (5) (S) 8) (82) (100)  - 1 1 - 3.13 The IDA credit would finance US$9 million, or about 82% of total Project cost (US$11 million equivalent), including the foreign exchange (61%) and about US$2.3 million of local cost. Government would be the borrower and would bear the exchange risk. It would onlend Af 136 million (US$1.60 million equivalent) of the credit proceeds to AgBank at 4-1/2% interest with a repayment period of 15 years including five years' grace. Assurances to this effect were obtained during negotiations. AgBank would onlend these funds plus Af 51 million of its own funds to farmers and to HLDC for the slaughterhouse farm at 8% interest with repayment periods up to seven years including grace periods up to two years. The spread of 3-1/2 percentage points thus provided to AgBank would be sufficient to cover its provisions and administrative costs and would allow for some slippage in loan repayments (Appendix 12-5); it is also considered reasonable in view of the costs involved in reorganizing AgBank and in introducing the credit concept to Afghan farmers. 3.14 Government would also onlend Af 340 million ('US$4 million) of the credit to AgBank at 4-1/2% interest with a repayment period of 15 years including five years' grace. Assurances to this effect were obtained during negotiations. AgBank would onlend these funds to HLDC for a period of 15 years including five years' grace at an interest rate of 8% for the financing of the slaughterhouse construction and technical services. 3.15 In addition to its lending activities, AgBank would be the admin- istrative channel for a Government contribution to HLDC equity of Af 200 million, Af 145 million (US$1.7 million) of which would be provided by the IDA credit; AgBank would also be the administrative channel for a Government grant of Af 174 million, of which Af 145 million (US$1.7 million) would come from IDA, to HLDC for TSU, ERIC and road improvement. Assurances to this effect were obtained during negotiations. AgBank would charge no commission or fees on these equity and grant components. 3.16 The form of financing for principal investment items would be as follows:  - 12 - Government Funds Channeled Through AgBank As AgBank & Loans to Contribution Farmers' Farmers to HLDC Contribution or HLDC Equity Grant Total --------------------Af (million)-------------------